TREASURIES-U.S. yields rise as market angst eases a bit

BY Reuters | ECONOMIC | 05/13/22 11:16 AM EDT
       By Herbert Lash
    NEW YORK, May 13 (Reuters) - Treasury yields rose on Friday,
reversing the week's rally in bond prices driven by the largest
weekly inflows since COVID-19 slammed markets in March 2020, as
fears of a Federal Reserve policy error and runaway inflation
    The yield on 10-year Treasury notes rose 9.4
basis points to 2.911%, helped by Labor Department data that
showed import prices were flat in April. That added evidence of
a slight moderation in the rising pace of inflation.

    Economists polled by Reuters had forecast import prices,
which exclude tariffs, would climb 0.6% and followed a 2.9%
surge in March. Government data earlier this week showed monthly
consumer prices increased at the slowest pace in eight months.
    In a week that started with the 10-year note yield hitting
3.203%, within 6 basis points of the 3.261% decade peak set in
October 2018, BofA Global Research reported Treasuries saw $11.5
billion of inflows, the largest since March 2020.
    "We'll see intermittent rallies like we saw this week, where
the growth scare dominants and we see rates decline a bit," said
Kim Rupert, managing director of global fixed income at Action
    "It's been extremely volatile. We're whipsawing between
inflation fears and then growth fears picked up. It's a tug of
war between those two dynamics."
    Fed Chair Jerome Powell said on Thursday the U.S. central
bank's battle to control inflation would "include some pain" as
the impact of higher interest rates is felt, but that the worse
outcome would be for prices to continue speeding ahead.

    The yield on the 30-year Treasury bond rose 8.5
basis points to 3.056%.
    A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, seen as an indicator of economic
expectations, was at 30.5 basis points.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up 8.1 basis
points at 2.603%.
    The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
    The 10-year TIPS breakeven rate was last at
2.68%, indicating the market sees inflation averaging about 2.6%
a year for the next decade.
    The U.S. dollar five-years forward inflation-linked swap
, seen by some as a better gauge of inflation
expectations due to possible distortions caused by the Fed's
quantitative easing, was last at 2.633%.

     May 13 Friday 10:54 AM New York / 1454 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.955        0.9705    0.030
 Six-month bills               1.4          1.4293    0.017
 Two-year note                 99-206/256   2.6027    0.081
 Three-year note               99-222/256   2.7965    0.082
 Five-year note                99-100/256   2.8827    0.101
 Seven-year note               99-164/256   2.9324    0.097
 10-year note                  99-176/256   2.9112    0.094
 20-year bond                  86-192/256   3.2926    0.090
 30-year bond                  96-120/256   3.0556    0.085

                               Last (bps)   Net
 U.S. 2-year dollar swap        28.00         0.00
 U.S. 3-year dollar swap        13.25         0.25
 U.S. 5-year dollar swap         5.25        -0.50
 U.S. 10-year dollar swap        7.75        -0.50
 U.S. 30-year dollar swap      -23.75         1.00

 (Reporting by Herbert Lash; Editing by Richard Chang)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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